“…the Fed’s actions have resulted in savings to Treasury on all of its debt issuance. Those savings have come at a significant cost to investors as the Fed’s actions have resulted in an income transfer from savers to borrowers, including the Treasury…

…The interest savings to Treasury due to the difference in the “market” rate of interest that would have been paid under normal circumstances on its longer-term debt versus the artificially low interest rate actually being paid as a result of the Fed’s extraordinary polices has to be borne by someone.”, John Keener, Charlotte, N.C.

Fed Does Help Treasury Make Money

Regarding Robert Eisenbeis’s letter of Jan. 20: While I generally agree with his well-reasoned accounting analysis as to the “true substance” of “intragovernmental fund flows,” in the current environment the Federal Reserve’s actions have had the same effect as generating revenue for the Treasury.

To the extent of its debt held by the Fed, Treasury has been able to effectively borrow funds at a rate equal to the nominal rate paid by the Fed on banks’ excess reserves. But there has been even bigger savings to Treasury. By maintaining artificially low long-term interest rates through its QE initiatives, the Fed’s actions have resulted in savings to Treasury on all of its debt issuance.

Those savings have come at a significant cost to investors as the Fed’s actions have resulted in an income transfer from savers to borrowers, including the Treasury. The interest savings to Treasury due to the difference in the “market” rate of interest that would have been paid under normal circumstances on its longer-term debt versus the artificially low interest rate actually being paid as a result of the Fed’s extraordinary polices has to be borne by someone. To the extent of the debt that has been funded by the U.S. economy, the savings to Treasury effectively represents a cumulative “tax” on the U.S. economy.

But even more troubling is that the Fed’s actions are also having a long-term negative impact from a geopolitical and security perspective as it debases the debt held by central banks outside the U.S., thus hastening the demise of the dollar as the global reserve currency. The price to be paid will be well beyond the current interest savings to the American taxpayer.